This article discusses the long-term impact of debt on your finances and why paying it off should be a priority before considering investing.

Are you new to investing or business and unsure where to start? While it may be tempting to dive headfirst into building a one-person business or invest in private money pools, there is one investment strategy that every beginner should consider: paying off debts.

At a glance, paying off debts may not seem like an investment. However, you effectively invest in your financial future by freeing up money that would have gone toward interest payments. Here are a few reasons why paying off debts is the best investment strategy for beginners:

1. It’s a guaranteed return on investment

Investing in the stock market or a startup can be a risky proposition. There is no guarantee that your investment will yield a positive return. On the other hand, paying off debts is a guaranteed return on investment. Every dollar you put towards paying off your debts is one less dollar you’ll have to pay in interest charges. This can save you thousands of dollars in the long run.

For example, imagine you have a credit card with a $10,000 balance and an interest rate of 18%. If you only make the minimum monthly payment of $200, it will take you over nine (9!) years to pay off the balance, and you’ll end up paying over $12,000 in interest charges alone. However, by paying off the balance in full, you’ll save over $12,000 in interest charges and free up $200 per month to put towards other investments.

2. It can improve your credit score

Your credit score is one of the most important factors lenders consider when deciding whether to approve you for a loan or credit card. By paying off debts, you can improve your credit score and increase your chances of getting approved for future loans or credit cards with lower interest rates. This can save you even more money in the long run.

For example, imagine you have a credit card with a $5,000 balance and a 20% interest rate. If you only make the minimum monthly payment of $100, it will take you over seven years to pay off the balance, and you’ll end up paying over $4,500 in interest charges alone. However, by paying off the balance in full, you can improve your credit score and potentially qualify for a credit card with a lower interest rate, saving you even more money in the long run.

3. It can reduce stress and improve your mental health

Debt can be a significant source of stress and anxiety for many people. By paying off debts, you can free yourself from that stress and . start to feel more in control of your finances. This can lead to better mental health and improved quality of life.

For example, imagine you have a student loan with a $30,000 balance and a 6% interest rate. If you only make the minimum monthly payment of $300, it will take you over 15 years to pay off the balance, and you’ll end up paying over $17,000 in interest charges alone. By paying off the balance in full, you can free yourself from the stress and anxiety of having a large student loan balance and start to feel more in control of your finances.

So, how do you get started with paying off your debts? The first step is to create a budget and prioritize your debts. Start by listing out all of your debts, including the balance, interest rate, and minimum monthly payment. Then, look for ways to cut expenses and increase your income so that you can allocate more money toward paying off your debts each month. Next, consider using the debt snowball method, which involves paying off your debts from smallest to lager, or the debt avalanche method, which consists in paying off your debts from highest interest rate to lowest.

In conclusion, paying off debts is the best investment strategy for beginners. Paying off debts can significantly impact your overall financial well-being by saving money on interest payments, improving your credit score, and reducing stress and anxiety. So, if you’re a beginner investor looking to get started, start by paying off your debts and watch your financial future flourish.